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April 8, 2013

Release Date: 
Monday, April 8, 2013

Gold and silver prices were lower today on the New York Spot Market, largely on technical selling following Friday’s higher prices. Nonetheless, some analysts believe a rally is on the horizon. “We think gold is positioned, from a chart, momentum and sentiment standpoint, for a decent rally,” said the chief technical strategist at S&P Capital IQ. (“Gold Showing Some Technical Signs Of Tracing Out A Bottom,” WSJ, 4/8/13.)

UBS wrote that disappointing job numbers and weakness in the U.S. economy may support gold. "All in all, U.S. employment data was on the weak side, and this should feed into lingering concerns about the U.S. economy and the potential for deterioration in data to push out tapering of QE (quantitative easing) further into the future…These concerns, and their implications on monetary policy expectations, will probably take time to gain traction, though… What is important for gold at this point is that the recent U.S. economic data has eased the pressure that was weighing heavily on the market last week." (“UBS: Pressure On Gold Eases After Weak U.S. Jobs Report On Friday,” Kitco News, 4/8/13.)

Forbes discussed how gold has generally benefitted from the loose monetary policies adopted by the world’s central banks. “Gold has also been very responsive to the size of major central banks’ balance sheets, with bullion prices benefitting from easing across the globe…. These three factors (Japanese QE, weak labor markets in the U.S. supporting Bernanke’s loose policies, and a return of the European sovereign debt crisis), suggest gold prices could find support going forward.  Gold bulls will continue to face pressure from an improving U.S. economy, and a subsequent strengthening of the U.S. dollar, and European policymakers’ ability to put out a fire.” (“Can Gold Bulls Keep It Going After Japan's Big QE And A Weak Jobs Report?” Forbes, 4/8/13.)

Analysts continue to question the long term effects of quantitative easing following the Bank of Japan’s decision to double the country’s monetary base. "Monetary policy is being used as the policy tool to create demand. The question is, is this going to end in tears? Is this going to end in worse calamity for the markets than what we had in 2008 and 2009? No one knows. But the point is, the market's enjoying it now," observed the chief market strategist for Prudential Annuities. (“US, Japan Now Global Allies in Money Printing,” CNBC, 4/8/13.)

Rather than stimulating Japan’s economy, this massive injection of cash may lead to global inflation. “There are other risks as well. By flooding Japanese financial markets with cash, that cash will have to find someplace to go, and it won’t all find a home in Japan. That suggests that the BOJ may be stoking inflation elsewhere, as well as potential asset bubbles. Furthermore, the BOJ policy will weaken the value of the yen (as has already started to happen). This is a conscious policy to aid Japanese exporters. But it is also a beggar-thy-neighbor policy that could spark countermeasures from Japan’s trading partners. We forget in all of the mania about China that Japan, despite its two-decade decline, is still the world’s No.3 economy and what the BOJ does will have a sweeping impact around the world.” (“A Yen for Cash: How the Bank of Japan Could Threaten the Global Economy,” Time 4/8/13.)

PIMCO’s Bill Gross also questioned whether quantitative easing may result in long term injury to the economy. “Gross pointed out that ever since the demise of the Gold Standard — which explicitly linked the value of paper money in circulation to bullion — the total value of global credit markets has expanded exponentially, from about $3 trillion in the early 1970s to approximately $56 trillion today. The sheer size of credit markets, combined with persistently low interest rates, raises the question of whether monetary policy is conducive to inflation-adjusted growth, he said. "Unless we ultimately de-lever...then the economy is in difficulty in terms of expanding," Gross told CNBC. (“Pimco's Bill Gross: Beware of 'Monetary Red Bull',” CNBC, 4/8/13.)

Former British Prime Minister Margaret Thatcher died today at the age of 87. Ms. Thatcher was a close ally with President Ronald Reagan and shared many of his views regarding the free market economy and combatting the Soviet Union. (“Former British Prime Minister Margaret Thatcher Dies,” WSJ, 4/8/13.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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